How Clix lost out to DBS in race for LVB2 min read . Updated: 19 Nov 2020, 06:11 AM IST
- Clix Capital wrote to the bank in the first week of November that it will have to pull out if the deal gets inordinately delayed
The capital-raising committee of Lakshmi Vilas Bank (LVB) was finalizing its recommendations to the bank’s board about an investment proposal from Clix Capital when the Reserve Bank of India (RBI) abruptly seized the lender, imposed a moratorium and announced a merger with DBS Bank India.
The committee was working on the note for the Lakshmi Vilas Bank board meeting scheduled for Wednesday.
Following several rounds of back-and-forth negotiations across a month, a proposal was finalized in which Clix would buy an 85% stake in Lakshmi Vilas Bank.
The non-bank lender had promised to bring upfront capital of ₹1,700 crore, and raise ₹752 crore from investors.
“The ₹1,700 crore that was being brought in by Clix was not entirely for capital purpose. Since banks have higher capital requirements, some of that new capital would have gone into keeping higher risk weights against its (Clix’s) unsecured book. The bank needed at least ₹2,500 crore of upfront capital for its revival," a person aware of the matter said on condition of anonymity.
Apart from discussing the Clix proposal, the committee, under the newly constituted board, had also reached out to other strategic investors.
One option was to get a strategic and a financial investor together, said a second person aware of the matter.
“Only three-to-four months was not enough to complete the diligence process. And before the investment talks could be taken forward, the Reserve Bank of India effected this amalgamation with DBS Bank. Otherwise, the investment could have been possible within another month. These transactions take time. The new board was actively seeking a strategic investment from these players," this person said.
On 4 October, Clix Capital submitted a non-binding offer to invest in Lakshmi Vilas Bank, along with certain observations about the provisioning of the bank’s contingent liability of ₹720 crore related to transactions involving former Religare promoters Malvinder Singh and Shivinder Singh.
The bank responded on 13 October with documents supporting that enough provisions have been made against this liability.
“They (Lakshmi Vilas Bank board) kept postponing a final decision. The Reserve Bank was marked in all the communication that was going on between the bank and Clix Capital," said a third person aware of the developments.
Finally, Clix Capital wrote to the bank in the first week of November that it will have to pull out if the deal gets inordinately delayed.
At this time, the committee was in talks with other investors as well, and was also studying the observations of a diligence report by Deloitte, which said some of Clix Capital’s loan portfolio was unsecured, including promoter funding and education loans.
“The non-banking financial company was going through due diligence over the last six months. How could they expect to complete the negotiation in one month’s time? There were a lot of clarifications required from both sides. We had to make sure it was fit and proper," said the first person cited earlier.
Along with the board, the Reserve Bank of India was also independently reaching out to several suitors among banks.
Finally it was only DBS which agreed to bailout the private sector bank. While the board was aware of RBI’s search, it was also taken by surprise at RBI’s choice of DBS. Finally, the regulator worked through the Diwali weekend to stitch together what is one of the fastest resolution plans for a bank.